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Navigating The Change; Exploring Pakistan’s Pension Policy & Implication Of Deduction For Early Retirement

By: Hafsa Aamir

In the Federal Government, a pension is a defined benefit and is currently admissible to the entitled employees and their families. The Pay and Pension Commission (PPC-2020) plays a key role in making policies related to pensions and suggesting amendments to them. Furthermore, the Finance Division proposes the changes which are approved by the Cabinet Division and Prime Minister. The focus of this article is on Retiring Pension which is granted to a Government servant who is permitted to retire after completing a qualifying service of 25 years. Earlier this year, the government allocated Rs. 761 billion in pensions for federal employees, which was later reduced to Rs. 654 billion.

Early Retirement Penalties are made that if government employees opt for early retirement after 25 years of service, the employee will be liable to a penalty of 3% per year reduction in gross pension from the retiring year till the age of retirement. The amendment is made under the;

  • Regulation-4 of Civil Service Regulation (CSR) Right to change or interpret rules; that is Government reserves the right to change provisions in these regulations to themselves.
  • Rule 17 (1) (b) of Rule of Business 1973 refers to Cabinets that can disposed of by circulation amongst them.

The government aims to manage the pension funds more sustainably, ensuring that limited resources are distributed. This ambitious effort, founded on the values of financial inclusion and social welfare, is poised to transform the country’s aging landscape. The main reason for such a developing state is financial sustainability. It helps reduce economic challenges as pension funds remain limited. Due to this change, the early retirement trend will not take place in the society.

The policy might be beneficial for the employees focusing on the following perspectives. This measure could encourage people to work for longer periods and contribute to the workforce which might help stabilize the economy. Through this scheme, individuals will be less likely to rely on additional financial assistance from the government. This change promotes fairness in that at a specific age, all employees will be given the same pensions. Because of consistent pension payouts, the government benefits from improved budgetary planning, which contributes to economic stability and efficient resource allocation. Job opportunities will increase such that if a person does not take early retirement he will not move to another institute which will help them hire new employees. The deduction in early retirement will eventually maintain a stable pension fund. With age, employees have more experience and valuable skills. They can help new workers gain knowledge and skills. When an employee will have to work for the complete time period, he/she will make more efforts in their work to get promotions, and opportunities to represent their organization. This policy mainly saves the budget amount that can be used for other economic activities.

There are some of the disadvantages this policy faces. It will be difficult for the individual facing health issues to complete their service, so they will also face a reduction in pension which they need for their treatment or other critical conditions. If these individuals raise their voices and make a perspective of unfair policy, there will be political instability and social unrest in the state. The status of individuals will lead to the problem of social inequality. Skilled workers may move to other countries where there are more benefits for the workplace. It will create a brain drain for individuals. People who want to start their business will face delayed entrepreneurship.

The policy allows the government to have better control over its budgetary allocations. A stable economic environment, facilitated by a well-managed pension system, can attract investments and promote economic growth, leading to increased revenue generation for the government. By completing the job time period, individuals do not depend on government funds before their retirement age. A stable pension system provides the government with the flexibility to implement other social and economic policies without being overly burdened by pension-related expenditures.

The policy encourages individuals to work longer, allowing them to accumulate more savings for their retirement years. This can result in a more financially secure retirement for the public. Stable pension funds help preserve other social benefits and services, such as healthcare education, etc. It reduces the pressure on government finances, potentially leading to lower tax burdens on the public or more targeted use of tax revenues for public welfare programs. Encouraging older individuals to stay in the workforce can create additional job opportunities for younger generations, reducing overall unemployment rates and promoting economic stability.

The contentious pension reform explains that Employees who opt to retire before their official retirement age will face a 3% reduction in their pension for the remaining years of service under the new policy. Every policy has its good and bad aspects, same goes for the pension reforms. Eventually, the new pension reform of 2023-24 represents a big step forward in Pakistan’s social and economic development. In my opinion, seeing the benefits of the policy, this should be implemented so that the government can create further opportunities. The government is establishing a society in which every citizen can retire with dignity and financial stability by assuring universal pension coverage, increasing financial literacy, and embracing digital innovation. This reform opens the road for a more secure future for the entire nation. The policy has its merits in promoting longer workforce participation and ensuring the stability of the pension system. By implementing this policy, more decisions can be made for better employment to stabilize the economy. To avoid public unrest, efforts should be made to ensure that the policy is implemented fairly and transparently.

Keeping in view the disadvantages of this policy, we can change some aspects of the policy to implement it as it will be beneficial for all. To avoid challenges, the following recommendations must be focused. If an employee has legitimate issues like health etc., he should be given the right to retire early with complete benefits. A strong support system should be created, such as healthcare aid, vocational training, and financial counseling, to help persons who are forced to retire early due to situations beyond their control. If the policy creates social inequalities by penalizing those who cannot work until 60, it needs improvement to ensure fairness and equality among retirees. If any employee wants to move to another organization or wants to start a business, so their reduction of pension should be increased till retirement age. Implement clear communication skills to educate the public on the policy, its benefits, and accessible assistance choices, so encouraging informed decision-making should be cleared about policy. More divisions should be made in the workplace such as training sections, internship programs, etc. so that they can hire new employees who can get training through the older employees who are at the age of retirement.


The writer is a Public Policy student at the National University of Science and Technology. She can be reached at [email protected]

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